SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934
                   For the fiscal year ended December 31, 1996

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934


                          Commission file number 0-5633

                           ENVIRONMENT ONE CORPORATION
                 (Name of small business issuer in its charter)

         NEW YORK                                        14-1505298
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation of organization)

2773 Balltown Road, Niskayuna, New York                12309-1090
(Address of principal executive offices)                (Zip Code)

                    Issuer's telephone number (518) 346-6161

Securities registered under Section 12(b) of the Exchange Act:         None

Securities registered under Section 12(g) of the Exchange Act:
                               Title of each class
                           Common Stock $.10 par value

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to filing requirements for the past 90 days.
Yes      [ X ]    No       [   ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosures will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ X ]

Revenue for the year ended December 31, 1996: $21,536,430

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of January 30, 1997: $20,707,759

The number of shares of Common Stock,  par value $.10  outstanding as of January
30, 1997: 4,219,054

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's definitive proxy statement for its 1997 Annual Meeting
of Shareholders  (to be filed no later than April 30, 1997) are  incorporated by
reference in response to Items 10 and 11 of Part III of this report.
<PAGE>
                           Environment One Corporation
                                   Form 10-KSB
                                     Part I

Item 1.  Business

The Environment One Corporation  (EONE) is an  environment-oriented  product and
service company which started  operations in January 1969. The Company  operates
in two business  segments:  (A) Sewer Systems Business and (B) Detection Systems
Business. In January,  1996, the Company sold its Cirrus Incipient Fire Detector
(IFD) product line to PROTEC Fire Detection, plc of Nelson, Lancashire, England.
Information  regarding  this  sale is set  forth  below  in Item 6.  Information
regarding  the  percentages  of total  sales  attributable  to the two  business
segments for the past two fiscal years is set forth below in Item 6.

                                  Sewer Systems

Low pressure  sewer  systems in the market today were  pioneered by EONE. It has
proven to be an  economical  and  effective  method of  handling  wastewater  in
otherwise  difficult  real  estate  developments  including:  waterfront,  hilly
terrain,  very flat  lands and areas with high  water  tables.  As more and more
communities are looking for cost effective  solutions to waste water  collection
problems,  Environment One Corporation's pressure sewer systems ("EONE Sewers"),
are  increasingly  used in  mainstream  municipal  and real  estate  development
applications.

Grinder pumps developed by the Company make the pressure sewer system  feasible.
These units accept waste water from point sources,  grind it into a fine slurry,
and pressurize it to permit transport  through small diameter pipes.  This small
diameter  pressurized  pipe can follow the contour of the terrain,  resulting in
reduced costs of installation  compared to conventional  gravity lines.  Several
models of the grinder pump are manufactured with and without storage tanks.

The  manufacture of the grinder pump involves use of  independent  suppliers for
several of the components.  Fabrication,  machining, assembly and testing of the
assembled units are completed at the Company's plant.

The principal  markets  served by the pressure sewer systems are city and county
sewer districts,  residential builders and land developers along with individual
homeowners.  Products are sold to these  markets  from  regional  sales  offices
across the  United  States  and  through a network of more than 30  distributors
throughout  the United  States,  Canada,  Europe and Japan.  Several  other pump
manufacturers  offer grinder pumps and compete with EONE in these  markets.  All
but  one  offers  a  centrifugal  type  of  pump.   Environment  One's  positive
displacement pump and tank are unique, offering several distinct advantages over
the centrifugal pump. The Company believes it is well known in this marketplace.

                               Detection Systems

The Company's  Detection  Systems'  products  include:  (1) Generator  Condition
Monitor; and (2) Hydrogen Control Cabinet. These detection instruments are based
on the Company's expertise in the detection of sub-microscopic particles and gas
monitoring.

                        Generator Condition Monitor (GCM)

The GCM is  designed  to  provide  early  warning  of  certain  thermal  failure
conditions  which  could lead to  shutdown  of  hydrogen-cooled  electric  power
generators.  The  monitor  also  facilitates  preventative  maintenance  of such
<PAGE>
equipment.  The principal  market  served is electric  utility  companies,  both
domestic  and  international.  Customers  are  served by direct  sales  from the
Company's  marketing  function or by manufacturers'  representatives  in certain
parts of the world.  There are only two other  manufacturers  of this  equipment
worldwide and the Company is believed to be the leader in this market.

As a companion to the GCM, the Company also manufactures and sells an instrument
for  air-cooled  electric  generators  (GCM-A).  This  extends the  marketing of
condition  monitors to include  hydroelectric  and gas turbine driven generating
stations.

As an ancillary  product to the GCM, the Company sells tagging  compounds  under
the name GEN-TAGS  that are applied to critical  areas of large  electric  power
generator units.  The tagging  compounds will assist utilities to quickly locate
"hot spots"  developing in  generators  causing the GCM to alarm at which time a
sample of the overheated tagging compound (pyrolysate) is collected. Analysis of
the sample determines the location of the "hot spot" area. Depending on the area
of overheating,  a different "fingerprint" or "chemical signature" will identify
each area for location of potential trouble.

                         Hydrogen Control Cabinet (HCC)

In 1995, the HCC was added to the detection systems product  offerings.  The HCC
continuously analyzes the purity of hydrogen and controls the rate of scavenging
in hydrogen-cooled turbine generators. It is vital to maintain the purity of the
hydrogen because it directly  affects both efficiency and safety.  To maintain a
hydrogen purity of approximately  98% in the generator  casing, a small quantity
of hydrogen gas is  continuously  scavenged from the  generator's  end seals and
discharged to the atmosphere.

The HCC is designed and  manufactured to satisfy the requirements of the General
Electric Company's Power Systems group, located in Schenectady, NY. The HCC will
be used by both domestic and international electric utility companies.

The major  components  of the HCC are two  completely  independent,  interactive
hydrogen  sensors and associated  electronics  that were designed by Environment
One. The  micro-controller  based system and explosion proof design represents a
new generation of hydrogen purity analyzer.

The HCC is sold direct by the Detection Systems  marketing  function and has the
potential for sale to the same customer base as the GCM.

Industry segment information is included in Note 8 to the Company's consolidated
financial statements included in Item 7.

                                Net Sales Backlog

The backlog of unshipped orders by industry  segment is shown below.  Generally,
all orders in the backlog at year-end are shipped during the following year. The
backlog has been  calculated by EONE's normal  practice of including only orders
that are to be delivered within twelve months. While these orders are firm, they
could be subject  to change or  cancellation  in the  future.  In the past,  the
effect of changes and cancellations has not been significant.
<PAGE>
Net Sales Backlog as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
                                         1996                      1995
                                         ----                      ----
<S>                                 <C>                          <C>
         Sewer Systems              $  1,403,661                 3,385,871
         Detection Systems               517,788                   249,925
                                    ------------                 --------- 
                                    $  1,921,449                 3,635,796
                                    ============                 =========
</TABLE>

                                Sources of Supply

Principal  components  used in the  manufacture  of the  Company's  grinder pump
include a motor, high density  polyethylene  parts, cast iron parts,  fabricated
stainless  steel and solid state controls.  The principal  components of the GCM
and HCC include fabricated aluminum,  sheet metal and stainless steel, assembled
miscellaneous electronics, printed circuit boards and mechanical gauges.

The  Company  does not  believe  that it is  dependent  on any one  supplier  or
subcontractor  to the  extent  that  termination  or  loss  of the  supplier  or
subcontractor relationship would have a material adverse effect on the Company's
business.

                                     Patents

Since  inception,  the Company has been issued numerous U.S. and foreign patents
and it has filed numerous patent applications relating to product features.  The
Company believes that patent protection is important and materially  strengthens
its competitive  position with respect to all the specific  products that it now
markets. The Company,  however, does not depend on any single patent or group of
patents.

                            Research and Development 

All  research  and  development  costs are  charged  directly to  operations  as
incurred.  Research  and  development  costs  were  approximately  $177,000  and
$266,000 in 1996 and 1995, respectively.

                                  Environmental 

Compliance by the Company with federal, state and local environmental protection
laws  during 1996 and 1995 had no material  effect  upon  capital  expenditures,
earnings or the competitive position of the Company.

                                    Employees

At December 31, 1996, the Company had 103 full-time employees.

                               Principal Customers 

The  Company  had sales  equaling  6% and 14% of total  company  revenues to one
customer in 1996 and 1995, respectively.
<PAGE>
                       Foreign Operations and Export Sales 

The Company has entered into foreign markets and license agreements with respect
to certain  products.  In December 1990,  Environment One Corporation  Japan Co.
Ltd. was founded in Tokyo,  Japan as a 70% owned subsidiary of the Company.  The
purpose  of this  corporation  is to  promote  the  adaptation  and sales of low
pressure sewer systems in Japan.

Export sales of low pressure sewer systems were  approximately  2.8% and 3.7% of
total  Company sales in 1996 and 1995,  respectively.  Export sales of detection
instruments  (including IFD) were  approximately  4.5% and 7.2% of total Company
sales in 1996 and 1995, respectively.

             CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
       PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

                  The  Private  Securities  Litigation  Reform  Act of 1995 (the
"Act")  provides a "safe  harbor" for  forward-looking  statements  to encourage
companies to provide  prospective  information  about  themselves while limiting
unwarranted   litigation,   provided  that  the  statements  are  identified  as
forward-looking  and  are  accompanied  by  meaningful   cautionary   statements
regarding important factors that could cause actual results to differ materially
from those projected in the statement.  The Company desires to take advantage of
the "safe harbor"  provisions of the Act, and is including the  information  set
forth  below in this  Form  10-KSB  to point out the  inherent  difficulties  in
predicting the impact of certain factors.

                  While the Company believes that its assumptions underlying any
forward-looking statements are reasonable,  the following  information  includes
important  factors  which could  cause the  Company's  actual  results to differ
materially from any result which might be projected,  forecasted,  estimated, or
budgeted by the Company in its forward-looking statements,  whether contained in
this Form 10-KSB or otherwise.

                   1.    Heightened  competition,  including the intensification
                         of price competition, the entry of new competitors, and
                         the  introduction  of new  products by new and existing
                         competitors.

                   2.    Failure  to obtain  new  customers  or retain  existing
                         customers.

                   3.    Adverse  publicity  and  news  coverage  impacting  the
                         Company's reputation and sales potential.

                   4.    Inability to carry out marketing and sales plans due to
                         unforeseen factors.

                   5.    Significant economic downturns in the geographic market
                         areas serviced by the Company.

                   6.    Higher  service,  administrative,  or general  expenses
                         occasioned  by the  need  for  additional  advertising,
                         marketing,  administrative,  or management  information
                         systems expenditures.
<PAGE>
                   7.    A lack  of  availability  of raw  materials,  necessary
                         manufacturing  equipment,  or contract manufacturers to
                         meet the Company's needs.

                   8.    Underutilization   of   the   Company's   manufacturing
                         resources,  resulting in production  inefficiencies and
                         higher costs.

                   9.    Start-up   expenses,   inefficiencies,    delays,   and
                         increased  depreciation  costs in  connection  with the
                         start of production in new facilities and expansions of
                         existing facilities.

                   10.   The  acquisition  of fixed and other assets,  including
                         inventory and receivables,  and the making or incurring
                         of any  expenditures  and  expenses,  including but not
                         limited to  depreciation  and research and  development
                         expenses.

                   11.   Any  revaluation of assets or related  expenses and the
                         amount of, and any changes to, tax rates.

                   12.   Loss or retirement of key executives.

                   13.   Any  activities  of parties  with which the Company has
                         agreements   or   understandings,   including   matters
                         affecting any  investment or joint venture in which the
                         Company has an investment.

                   14.   The amount,  type, and cost of the financing  available
                         to the Company, and any changes to that financing.

                   15.   Adverse results in significant litigation or regulatory
                         proceedings.

                   16.   Adverse changes in laws, regulations,  interpretations,
                         and enforcement  policies affecting the Company and its
                         business operations.

                   17.   Natural  disasters,  work  stoppages,  and other events
                         beyond the control of the Company.

                  The  foregoing  list of  factors  should not be  construed  as
exhaustive,  or as any admission  regarding the adequacy of disclosures  made by
the Company prior to the filing of this Form 10-KSB.
<PAGE>
Item 2.   Property

The  Company's  headquarters  in  Niskayuna,  New York is  located  in a modern,
concrete  and steel  frame,  electrically  and gas  heated  and air  conditioned
building on approximately 35 acres of wooded land owned in fee. This facility is
subject to a  mortgage  as  described  in Note 2 to the  Company's  consolidated
financial  statements  included  in Item 7. All  segments  of the  business  are
operated from the Company's headquarters.

Management believes that the Company's  facilities are well maintained,  in good
operating condition, adequately covered by insurance and are well adapted to its
present needs.

Item 3.  Legal Proceedings

The Company is not involved in any material legal proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders

None

                                     Part II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

                           Price Range of Common Stock 

The Company's  common stock is traded on the National  Association of Securities
Dealers  Automated  Quotation System (NASDAQ) under the trading symbol EONE. The
following table sets forth the high and low sales prices of the common stock for
the calendar quarters indicated, as reported by the NASDAQ:
<TABLE>
<CAPTION>
                    1996                     High                       Low
<S>                                         <C>                        <C>                      
                  Quarter 1                 5 1/2                      4 3/4
                  Quarter 2                 6                          4 1/2
                  Quarter 3                 5 3/4                      4 3/4
                  Quarter 4                 6                          5 3/8

                    1995                     High                       Low
                  Quarter 1                 3 1/4                      2 1/4
                  Quarter 2                 4 1/4                      2 3/8
                  Quarter 3                 4 7/8                      3 7/8
                  Quarter 4                 5 1/2                      4 5/8
</TABLE>
<PAGE>   
                          Approximate Number of Security Holders

     Title of Class:                  Approximate Number of Holders at 12/31/96:
Common Stock $.10 par value                           2144 (1)

(1)  Includes  shareholders  of record in  "nominee"  or  "street"  name held by
brokers and others.

                                    Dividends

The Company paid no  dividends  on its common  stock  during 1996 and 1995.  The
Company's policy with regard to payment of dividends is evaluated  annually with
consideration given to future growth and operating fund requirements. Currently,
Company policy is not to pay dividends.

Item 6.  Management's Discussion and Analysis and Results of Operations

Cash provided from operations, as shown by the statement of cash flows (Item 7),
for 1996 was $927,000.  This  represented a decrease of $60,000 when compared to
1995. Major working capital  components of the operating cash flow decrease from
1995 were the increase in receivables of $2,210,000 as fourth quarter revenue in
1996  increased  42.3%,  or  $1,852,000,  over the same  period  in 1995 and the
increase in inventory of $423,000 to accommodate the growth in sales. Offsetting
this were  increases  in  accounts  payable,  income  taxes  payable and accrued
expenses of $774,000,  $348,000 and  $462,000,  respectively.  In addition,  the
Company accrued for the new deferred  executive  compensation plan that resulted
in $369,000 of non-cash  expense.  Investment in capital  expenditures  for 1996
amounted to $424,000 and  represented a decrease of $58,000 over 1995. The major
components of capital  expenditures in 1996 were the installation of an advanced
telephone system at the Company's  headquarters along with tooling and equipment
expenditures in the Sewer Systems Business for cost reduction,  enhanced product
performance and to improve the manufacturing process.

In January, 1996, the Company concluded an agreement with PROTEC Fire Detection,
plc of Nelson, Lancashire,  England for the sale of its Cirrus IFD product line.
In a two-stage  transaction with an approximate  value of $750,000,  the Company
transferred  all Cirrus IFD assets and  operations to PROTEC and  simultaneously
entered into a product technology development contract that was concluded during
1996.

In September,  1996, the Company recognized the potential  uncollectibility of a
note receivable from General Testing  Corporation  incurring a pre-tax write-off
of $136,000.  After failure to receive timely payments on the note, the Company,
through legal counsel,  served notice of default on the note to General  Testing
Corporation.  General Testing  Corporation did not cure the payment  defaults in
the period required. The Company is pursuing collection on the note.
<PAGE>
The following table shows selected  balance sheet  information for 1996 and 1995
expressed in thousands of dollars:
<TABLE>
<CAPTION>
                                                       1996                1995
                                                     -------              ------ 
<S>                                                  <C>                   <C>
Current Assets .........................             $ 7,614               4,896
Current Liabilities ....................               3,628               2,465
Working Capital ........................               3,986               2,431
Total Assets ...........................              11,255               8,722
Long-Term Debt .........................               1,500               1,839
Shareholders' Equity ...................               5,713               4,348
</TABLE>


                                     Summary

The following table shows a summary of operating  results for the years 1996 and
1995 expressed as a percentage of sales:
<TABLE>
<CAPTION>
                                                    1996          1995
                                                    ----         ----- 
<S>                                                <C>           <C>
Net Sales
   Sewer Systems .......................            86.9 %        87.7 %
   Detection Systems ...................             8.8          12.3
   Corporate ...........................             4.3           0.0
                                                   -----         -----
         Total Sales ...................           100.0         100.0

Cost of Sales ..........................            66.2          66.7
                                                   -----         -----
Gross Margin ...........................            33.8          33.3
Selling, Marketing and G&A .............            23.6          24.0
                                                   -----         -----

Income from Operations .................            10.2           9.3
Other Expense ..........................              .8           1.7
                                                   -----         -----

Income  Before Income Taxes.............             9.4           7.6
Income Tax Expense .....................             3.6           2.9
                                                   -----         -----

Net Income .............................             5.8 %         4.7 %
                                                   =====         =====
</TABLE>

Notes:   Amounts  referred  to  below  are set  forth in Item 7.  Gross  changes
         between  years  include  all  businesses.  Detailed  revenue  and  cost
         analyses exclude the effect of the sale of the IFD as part of Detection
         Systems.

<PAGE>
                 Twelve Months Ended December 31, 1996 and 1995 
 
Revenues for the period  increased by $4,196,000 or 24.2% when compared to 1995.
Sewer  Systems  sales  increased by  $3,511,000  while  Detection  Systems sales
increased  $960,000.  The Company also realized $300,000 in revenue from the IFD
product  development  contract.  Offsetting  these  increases was a reduction in
revenue of $575,000 due to the sale of the IFD in January 1996.  The increase in
sales in Sewer Systems is attributable to the emphasis the Company has placed on
sales and  marketing.  New  distribution  agreements  and new sales  offices are
adding up to increased  growth which has  resulted in record  shipments  for the
year.

The Detection  Systems revenue increase is attributable to increases in both GCM
and HCC on a year to year  comparative  basis.  Sales of GCM improved as utility
companies  increased their budgets for this type of capital  equipment over 1995
levels. In regard to HCC, the Company began shipping units in the fourth quarter
of 1995 with 1996 sales reflecting a full year's revenue stream.

Costs of Sales  increased by  $2,693,000  when compared to 1995. As a percent of
sales,  costs of sales remained flat at 66.2% in 1996 versus 66.7% in 1995. Both
direct and indirect  components of cost of sales  remained  virtually  flat on a
comparative  basis  resulting in a slight  improvement in gross margin of .5% to
33.8% in 1996.

Selling and Marketing  costs  increased  $394,000  when compared to 1995.  Sewer
Systems  costs in this  category  increased  $641,000  while costs in  Detection
Systems increased $77,000.  Offsetting these increases were costs avoided due to
the sale of the IFD.  Contributing  to the increase in Sewer  Systems  marketing
costs were expenses  associated  with the  operations of sales offices opened in
Florida  and  Minnesota  during  1995 and 1996,  respectively,  the  hiring of a
national sales manager in 1996, sales literature, travel and living expenses and
increased  internal  sales   commissions.   Detection  Systems  marketing  costs
increased  primarily due to increased  internal sales commissions and travel and
living expenses.

General and  Administrative  costs,  including  research and  development  (R&D)
expenses,   increased   $516,000   over  1995.   Excluding   R&D,   general  and
administrative  costs rose $605,000.  The increase in general and administrative
costs is  primarily a result of a new growth  performance  sharing and  deferred
executive  compensation  plan  adopted in 1996.  This plan  allows for bonus and
deferred compensation to be paid and/or accrued only if the Company, as a whole,
meets  specified  targets for growth in sales,  growth in earnings and return on
assets. The 1995 profit sharing plan allowed for bonus to be paid and/or accrued
on earnings only as long as loan principal  payments were met. Other general and
administrative  expenses  showing  increases in 1996 over 1995 were labor costs,
investor relations,  training and miscellaneous  expenses.  Decreases in year to
year expenses were realized in expenses for consultants and allocations of labor
overhead and facilities.

Research and  development  labor costs  decreased  $77,000 while non-labor costs
decreased  $12,000.  R&D costs in Sewer Systems increased $26,000 while costs in
Detection Systems decreased $97,000.  The decrease in Detection Systems costs is
primarily a result of reductions in  expenditures  related to the development of
the HCC that were incurred in 1995.
<PAGE>
             Twelve Months Ended December 31, 1996 and 1995 (con't.) 

Interest  expense  decreased  to $249,000  in 1996 when  compared to $328,000 in
1995.  The  Company  reduced  short-term  line of  credit  borrowing  in 1996 by
$475,000 while paying back $338,000 in principal payments on its long-term debt.
The Company's  borrowing rate over bank prime rate was also reduced to prime for
the line of credit and prime plus  one-half  point for the term loan.  Continued
control over expenses and capital expenditures,  strong cash inflow,  reductions
in borrowing  and reduced  interest  rates all  contributed  to the reduction in
interest expense on a comparative basis.

Income Taxes during 1996 and 1995 were $767,000 and $507,000 respectively.  As a
percent of income before taxes, both years were approximately 38%.

Liquidity
With sources of cash from operations,  the operating line of credit and the sale
of Cirrus  IFD,  the  Company  was able to meet its  working  capital  needs and
capital  expenditure  requirements in 1996. The Company's line of credit remains
at $2.5  million,  of which the Company had borrowed  $75,000 as of December 31,
1996. The Company  complied with all applicable  loan covenants  throughout 1996
and 1995.

Management  believes that the Company will be able to meet its cash requirements
in 1997 as a result of cash  generated  from  operations  and amounts  available
under the existing line of credit. The line of credit, which expires in April of
1997, is being negotiated with the Company's lender.  Although no assurances can
be given,  management  is  confident  that  this  negotiation  will  result in a
successful outcome.

Effects of Inflation and Changing Prices
The  impact  of  general  inflation  on the  Company's  operations  has not been
significant to date and the Company believes  inflation will continue to have an
insignificant  impact.  In  response  to the  limited  effect of  inflation  and
changing prices on the Company's  manufacturing and operating costs, the Company
has historically used selling price adjustments,  cost containment  programs and
improved  operating  efficiencies to offset the otherwise negative impact on its
operations.
<PAGE>
Item 7.  Financial Statements

Index to Financial Statements:
                                                                          
         Independent Auditors' Report                                     

         Consolidated Balance Sheet as of December 31, 1996               

         Consolidated Statements of Operations for the Years Ended        
         December 31, 1996 and 1995

         Consolidated Statements of Shareholders' Equity for the          
         Years Ended December 31, 1996 and 1995

         Consolidated Statements of Cash Flows for the Years Ended        
         December 31, 1996 and 1995

         Notes to Consolidated Financial Statements                       
<PAGE>
                          Independent Auditors' Report




The Shareholders and Board of Directors
Environment One Corporation:

We have  audited  the  consolidated  financial  statements  of  Environment  One
Corporation  and  subsidiary  as  listed  in  the  accompanying   index.   These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Environment  One
Corporation  and  subsidiary  as of December 31, 1996,  and the results of their
operations  and their  cash flows for each of the years in the  two-year  period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles.


                                                       /s/ KPMG Peat Marwick LLP
                                                       -------------------------
                                                       KPMG Peat Marwick LLP


Albany, New York
February 14, 1997
<PAGE>
<TABLE>
<CAPTION>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

                           Consolidated Balance Sheet

                                December 31, 1996



                              Assets
<S>                                                                  <C>
Current assets:
     Cash ....................................................       $    62,637
     Receivables:
         Trade (note 2) ......................................         4,860,264
         Other ...............................................           163,248
                                                                     -----------
                                                                       5,023,512
         Less allowance for doubtful accounts ................            92,091
              Net receivables ................................         4,931,421

     Inventories (note 2):
         Finished products ...................................           364,079
         Work in process .....................................           469,001
         Raw materials and supplies ..........................         1,439,020
                                                                     -----------
              Total inventories ..............................         2,272,100

     Prepaid expenses and other current assets (note 5) ......           347,577
                                                                     -----------
              Total current assets ...........................         7,613,735
                                                                     -----------

Property, plant and equipment (note 2):
     Land and land improvements ..............................           334,491
     Building and building improvements ......................         2,271,832
     Machinery and equipment .................................         5,024,175
     Construction in progress ................................            50,689
                                                                     -----------
                                                                       7,681,187
     Less accumulated depreciation ...........................         4,310,173
                                                                     -----------
              Net property, plant and equipment ..............         3,371,014

Patents and other assets, net ................................           148,906
Deferred income taxes (note 5) ...............................           120,886
                                                                     -----------
                                                                     $11,254,541
                                                                     ===========




          See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

                      Consolidated Balance Sheet, Continued

                                December 31, 1996



               Liabilities and Shareholders' Equity
<S>                                                                     <C>
Current liabilities:
     Current installments of long-term debt (note 2) ..............     $    338,100
     Note payable - bank (note 2) .................................           75,000
     Accounts payable .............................................        1,918,866
     Income taxes payable (note 5) ................................          309,544
     Accrued expenses:
         Payroll and related costs (note 6) .......................          460,623
         Taxes, other than on income ..............................           47,025
         Interest .................................................           17,632
         Warranty .................................................          211,223
     Accrued pension liability (note 6) ...........................          250,123
                                                                        ------------
              Total current liabilities ...........................        3,628,136

Long-term debt, excluding current installments (note 2) ...........        1,500,494
Deferred compensation (note 6) ....................................          369,461
                                                                        ------------
              Total liabilities ...................................        5,498,091
                                                                        ------------
Minority interest .................................................           43,068
                                                                        ------------
Shareholders' equity (note 4):
     Common stock of $.10 par value per share. Authorized 6,000,000
         shares; issued 4,169,970 shares ..........................          416,997
     Additional paid-in capital ...................................        7,446,789
     Accumulated deficit ..........................................       (2,076,164)
                                                                        ------------
                                                                           5,787,622
     Less cost of common shares in treasury (19,494 shares) .......          (74,240)
                                                                        ------------
              Total shareholders' equity ..........................        5,713,382
                                                                        ------------

Commitments (note 3)
                                                                        $ 11,254,541
                                                                        ============





          See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                           ENVIRONMENT ONE CORPORATION
                                 AND SUBSIDIARY

                      Consolidated Statements of Operations

                     Years ended December 31, 1996 and 1995



                                                     1996               1995
                                                 ------------      ------------
<S>                                              <C>               <C>
Sales of products and contract revenues ....     $ 21,536,430        17,340,432

Cost of sales and contract services ........       14,258,235        11,565,534
                                                 ------------      ------------
         Gross margin ......................        7,278,195         5,774,898
                                                 ------------      ------------

Operating expenses:
     Selling and marketing .................        2,502,644         2,108,320
     General and administrative ............        2,568,645         2,052,664
                                                 ------------      ------------
         Total operating expenses ..........        5,071,289         4,160,984
                                                 ------------      ------------

         Income from operations ............        2,206,906         1,613,914
                                                 ------------      ------------

Other income (expense):
     Interest expense ......................         (248,725)         (328,176)
     Miscellaneous income (note 1(a)) ......           46,774            29,765
     Minority interest in loss of subsidiary           16,237            13,008
                                                 ------------      ------------
                                                     (185,714)         (285,403)
                                                 ------------      ------------

         Income before income taxes ........        2,021,192         1,328,511

Income tax expense (note 5) ................          766,505           507,134
                                                 ------------      ------------

         Net income ........................     $  1,254,687           821,377
                                                 ============      ============

Per share amounts:
         Net income per common share .......     $        .29               .20
                                                 ============      ============



          See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                           ENVIRONMENT ONE CORPORATION
                                                  AND SUBSIDIARY

                                 Consolidated Statements of Shareholders' Equity

                                      Years ended December 31, 1996 and 1995



                                                                                                          Total
                                                        Additional                                        share-
                                            Common        paid-in      Accumulated        Treasury       holders'
                                            stock         capital        deficit           stock          equity
                                            -----         -------        -------           -----          ------
<S>                                      <C>            <C>            <C>             <C>             <C>
Balance at December 31, 1994 .......     $  411,401      7,268,461     (4,152,228)        (46,852)      3,480,782

Exercise of options (13,600 shares
     of common stock) ..............          1,360         10,540           --           (11,250)            650

Issuance of 15,000 shares of common
     stock from treasury ...........           --           16,114           --            28,886          45,000

Net income - 1995 ..................           --             --          821,377            --           821,377
                                         ----------     ----------     ----------      ----------      ----------

Balance at December 31, 1995 .......        412,761      7,295,115     (3,330,851)        (29,216)      4,347,809

Exercise of options (22,600 shares
     of common stock) ..............          2,260         16,778           --           (14,340)          4,698

Tax benefit from exercise of options
                                               --           38,182           --              --            38,182

Acquisition of 6,775 shares of
     common stock ..................           --             --             --           (34,490)        (34,490)

Issuance of 999 shares of common
     stock from treasury ...........           --            1,189           --             3,806           4,995

Issuance of 19,755 shares of common
     stock .........................          1,976         95,525           --              --            97,501



Net income - 1996 ..................           --             --        1,254,687            --         1,254,687
                                         ----------     ----------     ----------      ----------      ----------

Balance at December 31, 1996 .......     $  416,997      7,446,789     (2,076,164)        (74,240)      5,713,382
                                         ==========     ==========     ==========      ==========      ==========



                          See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                  ENVIRONMENT ONE CORPORATION
                                        AND SUBSIDIARY

                             Consolidated Statements of Cash Flows

                            Years ended December 31, 1996 and 1995

                                                                     1996             1995
                                                                 -----------      -----------
<S>                                                              <C>              <C>
Cash flows from operating activities:
    Net income .............................................     $ 1,254,687          821,377
    Adjustments to reconcile net income to net cash
      provided by operating activities:
          Depreciation and amortization ....................         596,293          570,412
          Gain on sale of equipment and patents ............        (291,544)            --
          Loss on write-off of note receivable .............         135,533             --
          Minority interest in loss of subsidiary ..........         (16,237)         (13,008)
          Non-cash compensation expense ....................         102,496           45,000
          Accrual for deferred compensation ................         369,461             --
          Deferred income taxes ............................        (271,539)          54,921
          Increase in receivables ..........................      (2,209,701)        (426,498)
          Increase in inventories ..........................        (422,539)        (154,823)
          Decrease (increase) in prepaid expenses ..........           4,378          (14,543)
          Increase (decrease) in accounts payable ..........         774,313          (34,960)
          Increase in income taxes payable .................         347,726             --
          Increase in accrued expenses .....................         461,827           99,904
          Increase in other current liabilities ............          92,186           39,967
                                                                 -----------      -----------
              Net cash provided by operating activities ....         927,340          987,749
                                                                 -----------      -----------

Cash flows from investing activities:
    Capital expenditures, including patents ................        (423,701)        (482,000)
    Proceeds from sale of equipment and patents ............         300,000             --
                                                                 -----------      -----------
              Net cash used in investing activities ........        (123,701)        (482,000)
                                                                 -----------      -----------

Cash flows from financing activities:
    Net decrease in note payable to bank ...................        (475,000)        (450,000)
    Proceeds from issuance of common stock .................           4,698              650
    Purchases of treasury stock ............................         (34,490)            --
    Capital contribution by minority interest ..............          10,775           25,722
    Proceeds from long-term debt ...........................            --            153,967
    Principal payments on long-term debt ...................        (338,100)        (338,100)
    Principal payments on capital lease obligations ........            --            (29,688)
    Loan financing fees ....................................            --               (886)
                                                                 -----------      -----------
              Net cash used in financing activities ........        (832,117)        (638,335)
                                                                 -----------      -----------

Net decrease in cash .......................................         (28,478)        (132,586)

Cash at beginning of year ..................................          91,115          223,701
                                                                 -----------      -----------
Cash at end of year ........................................     $    62,637           91,115
                                                                 ===========      ===========
<PAGE>
<CAPTION>
                                  ENVIRONMENT ONE CORPORATION
                                        AND SUBSIDIARY

                       Consolidated Statements of Cash Flows (continued) 

                            Years ended December 31, 1996 and 1995

                                                                     1996             1995
                                                                 -----------      -----------
<S>                                                              <C>              <C>
Supplemental  disclosures  of cash flow  information:
 Cash paid during the year for:
       Interest ............................................     $   251,503          334,407
                                                                 ===========      ===========
       Income taxes ........................................     $   689,173          275,378
                                                                 ===========      ===========

Supplemental disclosure of non-cash financing activity:
   Exchange of 2,390 and 2,000 shares of common stock in
    partial payment of exercise price on options during 1996
     and 1995, respectively ................................     $    14,340           11,250
                                                                 ===========      ===========
   Tax benefit from exercise of stock options ..............     $    38,182             --
                                                                 ===========      ===========



                 See accompanying notes to consolidated financial statements.

</TABLE>
<PAGE>
                                  ENVIRONMENT ONE CORPORATION
                                        AND SUBSIDIARY

                          Notes to Consolidated Financial Statements

                                  December 31, 1996 and 1995


(1) Summary of Significant Accounting Policies
       (a) Description of Business
            Environment    One    Corporation     (the    "Company")    is    an
               environment-oriented  product and service company,  which started
               operations  in  January  of 1969.  The  Company  operates  in two
               business  segments:  (1)  low  pressure  sewer  systems,  and (2)
               detection systems.

            The Sewer  Systems  business  primarily  manufactures  and  services
                grinder  pumps  pioneered  by the  Company to make low  pressure
                sewer systems feasible. The low pressure sewer system has proven
                to be an economical and effective  method of sewering  otherwise
                difficult  land  developments   including:   waterfront,   hilly
                terrain,  very flat lands and areas with high water  tables.  As
                more  and  more  communities  are  looking  for  cost  effective
                solutions to waste water  collection  problems,  Environment One
                Corporation's solution, EONE Sewers(TM), is increasingly used in
                mainstream municipal and developer  applications.  The principal
                markets  served  by  the  Company  are  city  and  county  sewer
                districts, builders, land developers, and individual homeowners.
                Products are sold by direct sales from the  Company's  marketing
                function and through dealer  networks  across the United States,
                Canada,  Europe,  and Japan.  There are other pump manufacturers
                offering  grinder  pumps for these  markets.  All but one of the
                Company's competitors offer a centrifugal type of pump.

            The Detection Systems business  manufactures the Generator Condition
                Monitor, the Cirrus Incipient Fire Detector ("IFD") (see further
                discussion  below),  and  the  Hydrogen  Control  Cabinet.   The
                Generator Condition Monitor is designed to provide early warning
                of  certain  thermal  failure  conditions,  which  could lead to
                shutdown of  hydrogen  cooled  electric  power  generators.  The
                Cirrus IFD provides unique capabilities that allow for area fire
                detection  often  not  attainable  by any other  means,  such as
                operational  stability  in adverse  ambient  conditions,  an air
                sampling  system  that  allows  for  small,   low   maintenance,
                electrically inert sample heads that are adjustable to different
                levels of sensitivity resulting in low false alarm rates. During
                1995,  the Hydrogen  Control  Cabinet was added to the Detection
                Systems  product   offerings.   The  Hydrogen   Control  Cabinet
                continuously  analyzes  the purity of hydrogen  and controls the
                rate of scavenging in hydrogen  cooled turbine  generators.  The
                Detection  Systems  products  are sold by direct  sales from the
                Company's  marketing function and through an independent network
                of  distributors  in  the  United  States,  Canada,  and  a  few
                countries  overseas.  There  are  believed  to be only two other
                manufacturers  of  this  type  of  detection  systems  equipment
                worldwide.
<PAGE>
            The Company  concluded an agreement with PROTEC Fire Detection,  plc
                of Nelson, Lancashire,  England on January 16, 1996 for the sale
                of its Cirrus IFD product line. As a part of this agreement, the
                Company sold all Cirrus IFD assets, with a net book value at the
                date of sale of $8,456,  for a realized  gain of  $291,544.  The
                gain,   net  of  certain   other   expenses,   is   included  in
                miscellaneous  income  in  the  accompanying  1996  consolidated
                statement of operations.

            In  April 1994, the Company sold its measurements division which had
                previously been a component of the Detection  Systems  business.
                As part of the consideration  received in this sale, the Company
                accepted a five-year  promissory  note  receivable  of $141,458.
                During 1996, the Company  determined that the remaining  balance
                on the  note  was  uncollectible  and  recorded  a  loss  on the
                write-off of the  outstanding  balance of $135,533.  The loss is
                included  in  miscellaneous  income  in  the  accompanying  1996
                consolidated statement of operations.

       (b)Principles of Consolidation
            The consolidated   financial   statements   include  the   financial
                statements of Environment One Corporation and its majority-owned
                foreign   subsidiary,   which  was  incorporated  in  1990.  All
                significant  intercompany  balances and  transactions  have been
                eliminated in consolidation.

       (c)Net Income Per Common Share
            Net income per common share is based upon 4,269,499 weighted average
                common  and common  equivalent  shares  outstanding  in 1996 and
                4,090,065  shares in 1995.  When  dilutive,  stock  options  are
                included as common  equivalent  shares using the treasury  stock
                method.  Fully  diluted  net  income  per  common  share  is not
                materially different from primary net income per common share.

       (d)Revenues, Costs and Inventories
            Sales and related  cost of sales are  recognized  when  products are
                shipped  to  customers.  Inventories  are valued at the lower of
                cost or market (net realizable  value),  costs being  determined
                principally on the basis of standards, which approximate average
                current production costs.

       (e)Property, Plant and Equipment
            Property,  plant and equipment are stated at cost.  Depreciation  on
                property,   plant   and   equipment   is   computed   using  the
                straight-line  method  for  financial  reporting  purposes,  and
                accelerated  methods  for income  tax  purposes.  For  financial
                reporting  purposes,  the Company  provides for  depreciation of
                property,  plant  and  equipment  over the  following  estimated
                useful lives:
<TABLE>
<CAPTION>
<S>                                                            <C>
                      Land improvements                        5-20 years
                      Building and building improvements       5-45 years
                      Machinery and equipment                  2-20 years
</TABLE>
<PAGE>
       (f)Patents and Other Assets
            The costs of patents  covering  products  expected  to be viable are
                deferred  and  amortized  on a  straight-line  basis over twenty
                years from the date of filing or  seventeen  years from the date
                of issue,  whichever is greater.  The deferred costs of specific
                patent  applications are written off if a patent  application is
                rejected. Loan financing fees are amortized over the term of the
                loan to which they relate.

       (g)Research and Development
            All research  and   development   costs  are  charged   directly  to
                operations  as  incurred.  Research  and  development  costs  of
                approximately  $177,000  and  $266,000  during  1996  and  1995,
                respectively,   are  included  in  general  and   administrative
                expenses.

       (h)Income Taxes
            Income taxes are accounted for under the asset and liability method.
                Deferred  tax  assets and  liabilities  are  recognized  for the
                future tax consequences  attributable to differences between the
                financial  statement  carrying  amounts of  existing  assets and
                liabilities  and  their  respective  tax  bases  and tax  credit
                carryforwards.  Deferred tax assets and liabilities are measured
                using enacted tax rates  expected to apply to taxable  income in
                the years in which those  temporary  differences are expected to
                be recovered  or settled.  The effect on deferred tax assets and
                liabilities  of a change in tax rates is recognized in income in
                the period that includes the enactment date.

       (i)Foreign Currency Translation
            Accounts of the foreign  subsidiary  have been  translated into U.S.
                dollars  substantially in accordance with Statement of Financial
                Accounting Standards ("SFAS") No. 52.

       (j)Stock Option Plans
            Prior to January 1, 1996, the Company accounted for its stock option
                plan in accordance with the provisions of Accounting  Principles
                Board  ("APB")  Opinion No. 25,  Accounting  for Stock Issued to
                Employees,  and related  interpretations.  As such, compensation
                expense  would be  recorded on the date of grant only if, and to
                the extent  that,  the current  market  price of the  underlying
                stock  exceeded  the  exercise  price.  On January 1, 1996,  the
                Company  adopted  SFAS  No.  123,   Accounting  for  Stock-Based
                Compensation,  which  permits  entities to  recognize as expense
                over the vesting period the fair value of all stock-based awards
                on the date of grant.  Alternatively,  SFAS No. 123 also  allows
                entities to continue to apply the  provisions of APB Opinion No.
                25 and provide pro forma net income and pro forma  earnings  per
                share  disclosures for employee stock option grants made in 1995
                and future years as if the  fair-value  based method  defined in
                SFAS No.  123 had been  applied.  The  Company  has  elected  to
                continue  to apply  the  provisions  of APB  Opinion  No. 25 and
                provide the pro forma disclosure requirements of SFAS No. 123.
<PAGE>
       (k)Impairment of Long-Lived Assets and Long-Lived Assets  
            To Be Disposed Of
            The Company  adopted the provisions of SFAS No. 121,  Accounting for
                the Impairment of Long-Lived Assets and for Long-Lived Assets to
                Be Disposed Of, on January 1, 1996. This Statement requires that
                long-lived  assets  and  certain  identifiable   intangibles  be
                reviewed   for   impairment   whenever   events  or  changes  in
                circumstances  indicate that the carrying amount of an asset may
                not be recoverable. Recoverability of assets to be held and used
                is measured by a comparison  of the carrying  amount of an asset
                to future net cash flows  expected to be generated by the asset.
                If such assets are considered to be impaired,  the impairment to
                be  recognized  is measured by the amount by which the  carrying
                amount  of the  assets  exceeds  the fair  value of the  assets.
                Assets  to be  disposed  of are  reported  at the  lower  of the
                carrying  amount or fair value less costs to sell.  Adoption  of
                SFAS No.  121 did not have a  material  impact on the  Company's
                financial position, results of operations or liquidity.

       (l)Use of Estimates
            Management  of the  Company  has  made a  number  of  estimates  and
                assumptions  relating to the reporting of assets and liabilities
                and the  disclosure  of  contingent  assets and  liabilities  to
                prepare these  consolidated  financial  statements in conformity
                with generally accepted accounting principles.
                Actual results could differ from those estimates.

(2) Short-term and Long-term Debt
            The Company  has  available  a  $2,500,000  line of  credit of which
                $2,425,000  is  available  at  December  31,  1996.  The line is
                secured  by  trade  accounts  receivable  and  inventories.  The
                Company  had  $75,000  outstanding  on this  line of  credit  at
                December  31,  1996.  The  interest  rate  on  this   short-term
                borrowing  at December  31, 1996 was based upon the bank's prime
                rate and was  8.25%.  The line of  credit,  unless  extended  or
                renewed, expires on April 30, 1997.

            The Company's  long-term debt consisted of the following at December
                31, 1996:

<TABLE>
<CAPTION>
<S>                                                             <C>
                    Construction note, payable in
                    installments of $28,175 monthly
                    beginning January 1, 1995, plus
                    interest based on the bank's prime
                    rate plus 1/2% at December 31, 1996
                    (8.75% at December 31, 1996), maturing
                    December 2000, secured by real property     $ 1,838,594
                                                                           
                    Less installments due within one year           338,100
                                                                -----------
                    Long-term debt, excluding current                      
                        installments                            $ 1,500,494                                          
                                                                ===========                                          
</TABLE>                                                        
<PAGE>
            The line  of  credit  and  construction   loan  agreements   require
                compliance  with certain  financial  loan  covenants  related to
                minimum current, debt service coverage and debt to worth ratios,
                as  well  as  minimum  working   capital  and  net  worth,   and
                limitations on capital  expenditures.  At December 31, 1996, the
                Company was in compliance with these covenants.

            Future principal payments on long-term debt are as follows:
<TABLE>
<CAPTION>
<S>                                                       <C>
                       1997                               $    338,100
                       1998                                    338,100
                       1999                                    338,100
                       2000                                    824,294
                                                          ------------
                                                          $  1,838,594
                                                          ============
</TABLE>

            The Company  is  not  required  to  maintain  compensating  balances
                pursuant  to the credit  terms under its line of credit with the
                bank.

(3)    Leases
            The Company is a party to  noncancellable  operating  leases for the
                rental  of  equipment  and  office  space.  Total  rent  expense
                incurred by the Company under  operating  leases during 1996 and
                1995 was $17,057 and $17,679, respectively.

            The future  minimum lease payments  under  noncancellable  operating
                leases as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
                  Year ending
                  -----------
<S>                                                <C>
                    1997                           $  12,488
                    1998                               8,248
                                                   ---------
                                                   $  20,736
                                                   =========
</TABLE>
(4) Shareholders' Equity
            During 1996 and 1995,  22,600  and  13,600  shares of the  Company's
                common  stock were  issued upon  exercise  of stock  options for
                $19,038 and $11,900,  respectively.  In  addition,  during 1996,
                10,000  shares  of common  stock  were  issued to the  Company's
                Chairman as compensation and valued in the amount of $47,501 and
                999  shares of common  stock  held in  treasury  were  issued as
                compensation  to other  individuals  and valued in the amount of
                $4,995.  During  1995,  15,000  shares of common  stock  held in
                treasury were issued to the Company's  Chairman as  compensation
                and valued in the amount of $45,000.
<PAGE>
       (a)Amended and Restated Stock Option Plan
            The Company's Amended and Restated Stock Option Plan was established
                in 1971  authorizing  100,000 shares for option  grants.  During
                1991,  the  shareholders  approved  an  amendment  to the  plan,
                authorizing  400,000 shares for option  grants.  Under the plan,
                options to purchase  common  shares may be granted to directors,
                officers and other key employees of the Company, and such shares
                may be authorized and unissued shares,  or issued and reacquired
                shares,  as  determined  by the Board of  Directors.  The option
                price per share may not be less than the fair market  value of a
                share of common stock on the date the option is granted, and the
                maximum  term of an option may not  exceed  ten  years.  Options
                granted under the plan  generally are  exercisable  20% per year
                beginning one year from the date of grant. During 1996 and 1995,
                the  Company  granted  options  for 38,182 and  163,044  shares,
                respectively, under this plan.

            At  December 31, 1996 and 1995, the Company has reserved 316,976 and
                304,894  shares,  respectively,  of its  common  stock  for  the
                exercise of stock  options under this plan, of which 246,285 and
                123,550   shares,    respectively,    were   exercisable.    The
                weighted-average  exercise  price  per  share of  those  options
                exercisable  under this plan was $3.14 and $2.30 at December 31,
                1996 and 1995, respectively.

       (b)1996 Incentive Compensation Plan
            During 1996,  the Company  adopted a stock award and incentive  plan
                that   permits  the  issuance  of   incentive   stock   options,
                non-qualified  stock options,  stock appreciation  rights (SARS)
                and restricted stock awards to selected directors,  officers and
                key employees of the Company,  and such shares may be authorized
                and  unissued  shares,  or  issued  and  reacquired  shares,  as
                determined by the Board of Directors. The plan allows grants for
                options on 300,000  shares of common stock and provides that the
                term of each award be  determined  by the Committee of the Board
                of Directors  ("Committee") charged with administering the plan,
                but cannot exceed 10 years.

            Under  the  terms  of  the  plan,  options  granted  may  be  either
                non-qualified or incentive stock options and the exercise price,
                determined  by the  Committee,  may not be less  than  the  fair
                market  value of a share of  common  stock on the date of grant.
                SARS,  and SARS  granted  in  tandem  with an  option,  shall be
                exercisable  only  to  the  extent  the  underlying   option  is
                exercisable,  and in no event less than six months from the date
                of grant,  and the grant  price  shall be equal to the  exercise
                price of the underlying  option. In addition,  the Committee may
                grant  restricted  stock to participants of the plan at no cost.
                Other than the restrictions  that limit the sale and transfer of
                these  shares,  participants  are  entitled  to all  rights of a
                shareholder.  During 1996, the Company  granted  incentive stock
                options for 24,000 shares under this plan.

            At  December 31, 1996, the Company had reserved 24,000 shares of its
                common stock for the exercise of options  under this plan.  None
                of the options were exercisable at December 31, 1996.
<PAGE>
       (c)Plans for Non-Employee Directors
            During 1996, the Company adopted a  non-qualified  stock option plan
                for the benefit of all  directors  who are not  employees of the
                Company. The plan allows grants for options on 100,000 shares of
                common  stock and such  shares may be  authorized  and  unissued
                shares,  or issued and  reacquired  shares,  as  determined by a
                committee of the Board of Directors  comprised of  disinterested
                directors.

            The option  price per  share  may not be less  than the fair  market
                value of a share of  common  stock  on the  date the  option  is
                granted , and the  maximum  term of an option may not exceed ten
                years.  Options granted under the plan shall become  exercisable
                in full  one  year  from the date of  grant.  During  1996,  the
                Company granted 9,090 shares under this plan.

            At  December 31, 1996,  the Company had reserved 9,090 shares of its
                common stock for the exercise of options  under this plan.  None
                of the options were exercisable at December 31, 1996.

            In  addition,  during 1996,  the Company  established  a stock grant
                plan for non-employee  directors that entitles each non-employee
                director  to  receive a stock  grant  equivalent  to  $10,000 on
                September  1st of each year  following  election to the Board of
                Directors.  The  grant is in lieu of all cash  compensation  for
                their  participation  on the  Board of  Directors.  For the year
                ended December 31, 1996,  the Company  granted the equivalent of
                $50,000 in common stock,  which has been  recognized as non-cash
                compensation  expense  in  the  accompanying  1996  consolidated
                statement of operations.
<PAGE>
            The following  table  summarizes,  by date of grant,  the  number of
                options  issued and the  exercise  price per share.  Options are
                generally  exercisable 20% per year beginning one year from date
                of grant and expire ten years from date of grant:
<TABLE>
<CAPTION>
                                Number of Options           
Date of Grant                        Issued            Option Price
-------------                   -----------------      ------------     
<S>                                 <C>                  <C>
June 1988 ..................         22,500              $ 0.9375
                                    =======              ========
May 1990....................         19,000              $ 2.3750
                                    =======              ========
July 1991 ..................         16,500              $ 1.4375
                                    =======              ========
July 1992 ..................         30,000              $ 2.8750
                                    =======              ========
April 1993 .................         47,000              $ 2.6250
                                    =======              ========
May 1994 ...................         41,000              $ 2.3750
                                    =======              ========
May 1995 ...................         48,500              $ 3.0000
                                    =======              ========
May 1995 ...................        100,000 (a)          $ 2.8500
                                    =======              ========
December 1995 ..............         14,544 (b)          $ 5.5000
                                    =======              ========
May 1996 ...................         23,182 (a)          $ 5.2500
                                    =======              ========
July 1996 ..................         36,500              $ 5.1300
                                    =======              ========
September 1996 .............          2,500              $ 5.3750
                                    =======              ========
December 1996 ..............          9,090 (b)          $ 5.5000
                                    =======              ========

(a) Exercisable 50% at date of grant and 50% one year from the date of grant.
(b) Exercisable in full one year from the date of grant.
</TABLE>
<PAGE>
            The following table summarizes stock option transactions during 1996
and 1995:
<TABLE>
<CAPTION>
                                                                              Weighted-Average
                                                    Option shares       Exercise Price Per Share
                                                    -------------       ------------------------
<S>                                                     <C>                     <C>
Balance at December 31, 1994 ...............            155,450                 $   2.09

Options granted ............................            163,044                     3.13

Options exercised ..........................            (13,600)                    0.88

Options expired ............................               --                         --
                                                       --------
Balance at December 31, 1995 ...............            304,894                     2.70

Options granted ............................             71,272                     5.22

Options exercised ..........................            (22,600)                    0.84

Options expired ............................             (3,500)                    2.45
                                                       --------
Balance at December 31, 1996 ...............            350,066                     3.34
                                                       ========

</TABLE>
<PAGE>
            The per share  weighted-average  fair value of stock options granted
                during  1996 and 1995 was  $3.22  and $1.89 on the date of grant
                using the Black Scholes  option-pricing model with the following
                weighted-average  assumptions: 1996 - expected dividend yield of
                0%, risk-free interest rate of approximately 6.5%, volatility of
                approximately  37%,  and an  expected  life of 5  years;  1995 -
                expected  dividend  yield  of 0%,  risk-free  interest  rate  of
                approximately  6.5%,  volatility  of  approximately  37%, and an
                expected life of 5 years.

            The Company  applies APB Opinion No. 25 in accounting  for its stock
                option plans and,  accordingly,  no  compensation  cost has been
                recognized   for  its   stock   options   in  the   accompanying
                consolidated   statements   of   operations.   Had  the  Company
                determined  compensation  cost  based on the  fair  value at the
                grant  date  for its  stock  options  under  SFAS No.  123,  the
                Company's  net income and net income per common share would have
                been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
                                                     1996                1995
                                               -------------         -----------
<S>                                            <C>                   <C>
Net income:
     As reported .....................         $   1,254,687             821,377
                                               =============         ===========

     Pro forma .......................         $   1,088,114             753,481
                                               =============         ===========
Net income per common share:
     As reported .....................         $         .29         $       .20
                                               =============         ===========

     Pro forma .......................         $         .25         $       .18
                                               =============         ===========
</TABLE>
            Proforma net income and net income  per common  share  reflect  only
                options granted in 1996 and 1995. Therefore,  the full impact of
                calculating  compensation  cost for stock options under SFAS No.
                123 is not  reflected in the pro forma amounts  presented  above
                because compensation cost is reflected over the options' vesting
                periods,  generally 5 years, and  compensation  cost for options
                granted prior to January 1, 1995 is not considered.
<PAGE>
(5)    Income Taxes
            Income tax expense for the years  ended  December  31, 1996 and 1995
                consists of:
<TABLE>
<CAPTION>
                                                  1996                    1995
                                             -----------             -----------
<S>                                          <C>                     <C>
Current:
     Federal ....................            $   958,044                 382,213
     State ......................                 80,000                  70,000
                                             -----------             -----------
                                               1,038,044                 452,213
Deferred ........................               (271,539)                 54,921
                                             -----------             -----------
                                             $   766,505                 507,134
                                             ===========             ===========
</TABLE>
<PAGE>
            The following  table  reconciles  the  expected  tax  expense at the
                Federal statutory rate to the effective tax rate.
<TABLE>
<CAPTION>
                                                       1996                     1995
                                                       ----                     ----
                                               Amount         %        Amount          %
                                             ---------      ----     ---------       ----
<S>                                          <C>            <C>      <C>             <C>
Computed expected
    tax expense ........................     $ 687,205      34.0%    $ 451,694       34.0%
State taxes, net of
    Federal benefit ....................        52,800       2.6        46,200        3.5
Research and experi-
    mentation credit ...................        (6,600)     (0.3)      (38,433)      (2.9)
Nondeductible loss of foreign subsidiary        12,881       0.6        10,320        0.8
Nondeductible expenses .................        15,247       0.8        12,322        0.9
Other ..................................         4,972       0.2        25,031        1.9
                                             ---------      ----     ---------       ----
                                             $ 766,505      37.9%    $ 507,134       38.2%
                                             =========      ====     =========       ====
</TABLE>

            For the year  ended  December  31,  1996,  the  deferred  income tax
                benefit  of  $271,539  results  from the  changes  in  temporary
                differences.  The tax effects of temporary differences that give
                rise to deferred tax assets and deferred tax  liabilities  as of
                December 31, 1996 are presented below:
<TABLE>
<CAPTION>

<S>                                                                   <C>
Deferred tax assets:
    Accounts receivable, due to allowance for
       doubtful accounts ........................................     $  31,311
    Inventories, principally due to additional costs
       inventoried for tax purposes pursuant to the Tax Reform
       Act of 1986 and inventory reserves .......................        64,703
    Warranty accrual ............................................        71,816
    Pension accrual .............................................        85,042
    Deferred compensation .......................................       125,617
                                                                      ---------
           Total gross deferred tax assets ......................       378,489
           Less valuation allowance .............................          --
                                                                      ---------
                                                                        378,489
Deferred tax liabilities:
   Prepaid expenses .............................................       (11,334)
   Property, plant and equipment, due to differences in
      depreciation lives and methods ............................        (4,731)
                                                                      ---------
            Net deferred tax asset ..............................     $ 362,424
                                                                      =========
</TABLE>
            At  December  31,  1995,  the net deferred tax asset was $90,885 and
                there was no recorded valuation allowance.

            At  December 31, 1996, the Company has New York State investment tax
                credit carryforwards of approximately $114,000.
<PAGE>
       In assessing  the  realizability  of  deferred  tax  assets,   management
          considers  whether it is more likely than not that some portion or all
          of the  deferred  tax  assets  will  not  be  realized.  The  ultimate
          realization of deferred tax assets is dependent upon the generation of
          future  taxable  income  during the periods in which  those  temporary
          differences  become  deductible.  Management  considers  the projected
          future  taxable  income  and  tax  planning  strategies,  as  well  as
          carryback  opportunities,  in making this  assessment.  Based upon the
          level of historical  taxable  income,  projections  for future taxable
          income  and  carryback  opportunities  over the  periods  in which the
          deferred  tax assets are  deductible,  management  believes it is more
          likely  than  not the  Company  will  realize  the  benefits  of these
          deductible   differences.   The  amount  of  the  deferred  tax  asset
          considered  realizable,  however, could be reduced in the near term if
          estimates of future taxable income are reduced.

       At December  31,  1996,  $241,538 of deferred  tax assets are included in
          other current assets.

(6) Employee Benefit Plans
       (a)Retirement and Profit Sharing Plans
            The Company has a defined  benefit  pension  plan  available  to all
                employees. Effective January 1, 1993, the Plan was amended to be
                non-contributory. The benefits are based on years of service and
                the employees'  earnings history during the years of employment.
                The  Company's  funding  policy is to  contribute  annually  the
                maximum  amount  that can be  deducted  for  Federal  income tax
                purposes.  Contributions  are  intended  to provide not only for
                benefits  attributed  to service  rendered  to date but also for
                those  expected to be earned in the future.  Plan assets consist
                of  group  annuity  contracts  which  represent  investments  in
                mortgages and bonds.

            The following  table sets forth the Plan's funded status and amounts
                recognized  in  the  Company's  consolidated  balance  sheet  at
                December 31, 1996:
<TABLE>
<CAPTION>
<S>                                                                 <C>
Accumulated benefit obligation, including vested
   benefits of $847,041 .....................................       $  (896,654)
                                                                    ===========

Projected benefit obligation for service rendered to date....        (1,519,893)
Plan assets at fair value ...................................           831,821
                                                                    -----------
Deficiency of plan assets over projected benefit
   obligation ...............................................          (688,072)
Unrecognized prior service cost .............................           181,086
Unrecognized net loss from past experience different
   from that assumed and effects of changes in
   assumptions ..............................................           283,044
Unrecognized net asset at January 1, 1987 being
   recognized over 15 years .................................           (26,181)
                                                                    -----------
  Accrued pension cost ......................................       $  (250,123)
                                                                    ===========
</TABLE>
<PAGE>
            Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
                                                         1996             1995
                                                     ---------        ---------
<S>                                                  <C>              <C>
Service cost - benefits earned during
    the period ...............................       $ 143,561          134,772
Interest cost on projected benefit
    obligation ...............................          94,985           86,818
Actual return on plan assets .................         (40,671)         (60,310)
Net amortization and deferral ................           1,247           19,083
                                                     ---------        ---------
    Net periodic pension cost ................       $ 199,122          180,363
                                                     =========        =========
</TABLE>


            Assumptions used in  accounting  for the pension plan as of December
                31, 1996 and 1995 were:
<TABLE>
<CAPTION>
                                                            1996         1995
                                                            ----         ----
<S>                                                         <C>          <C>
Discount rate ........................................      7.25%        7.25%
Rate of increase in compensation levels ..............      6.00%        6.00%
Expected long-term rate of return on assets ..........      8.00%        8.00%
</TABLE>

            During 1990,  the Company  established  a profit  sharing  plan that
                covers   substantially   all   employees  of   Environment   One
                Corporation.  Profit sharing expense was $132,852 in 1995. There
                was no profit sharing expense in 1996.

            During 1992,  the Company  established a 401(k) savings plan that is
                available  to  all  employees   who  meet  certain   eligibility
                requirements. The Company does not contribute to this plan.

       (b)Deferred Compensation Plans
            (i)   Growth Performance Sharing
                  During 1996,  the  Company  established  a Growth  Performance
                      Sharing  ("GPS")  plan  for  all  employees  based  on the
                      achievement  of  certain  objectives  that  include  sales
                      growth,  profit growth and return on assets.  During 1996,
                      the Company  recorded  $357,126  of expense  under the GPS
                      plan, and at December 31, 1996 the unpaid portion,  in the
                      amount of  $248,381,  is included  in accrued  payroll and
                      related  costs  in  the  accompanying   1996  consolidated
                      balance sheet.
<PAGE>
            (ii)  Deferred Compensation Plan
                  Effective  January 1, 1996,  the Company  adopted the Deferred
                      Compensation  Plan for Certain  Executive  Employees  (the
                      "Plan"),  which is a non-qualified  deferred  compensation
                      plan   for   a   select    group   of    management    and
                      highly-compensated  employees.  The purpose of the Plan is
                      to permit eligible employees to defer the receipt of up to
                      75% of  future  GPS  bonuses,  to have  the  deferred  GPS
                      bonuses applied to acquire shares of common stock,  and to
                      have the shares  distributed  at a future date selected by
                      the   employee  or,  if  earlier,   upon  the   employee's
                      involuntary  termination of  employment.  The Company will
                      match an  additional  amount  equal to 25% of the deferred
                      GPS bonus.  During 1996, the Company recorded  $369,461 of
                      expense under the Plan.

(7) Fair Value of Financial Instruments

       The following methods  and  assumptions  were used to  estimate  the fair
          value of each class of financial instruments:

       (a)Cash, Accounts Receivable, Accounts Payable and Accrued Expenses
            The carrying amount of cash, accounts  receivable,  accounts payable
                and  accrued  expenses  approximates  fair value  because of the
                short maturity of these instruments.

       (b)Note Payable and Long-term Debt
            The interest  rates on the Company's note payable and long-term debt
                are periodically  reset according to changes in the bank's prime
                rate which are  reflective of current market rates (see note 2).
                Consequently,  the  carrying  value  of  the  note  payable  and
                long-term debt approximates fair value.

(8) Industry Segment Information
            The Company's  operations consist of two segments that are concerned
                with the  development,  production  and  marketing  of products.
                Sewer  Systems  consists of products  designed to transport  and
                treat sanitary sewer waste.  Operations of the Detection Systems
                segment include the production and sale of products  designed to
                protect equipment and facilities and until January 1996 included
                the  production  and  sale of the  Cirrus  IFD  product  line as
                discussed  in note 1(a).  For the year ended  December 31, 1996,
                the   revenue,   income  from   operations   and  total   assets
                specifically  attributable  to the Cirrus IFD product  line have
                been recorded  within  Corporate due to the sale of this product
                line.  Also,  during  1996  the  Company  established  a  Growth
                Performance  Sharing  plan,  as discussed in note 6(b),  that is
                based on the Company's  achievement of certain  objectives.  The
                expenses  recorded  by the  Company  under  this  plan have been
                presented within Corporate  because such expenses are based upon
                the  performance  of  the  Company  as a  whole.  Total  revenue
                includes  sales  to   unaffiliated   customers;   there  are  no
                intersegment sales.
<PAGE>
<TABLE>
<CAPTION>
                              Sales to unaffiliated customers            Income (loss) from operations
                             ---------------------------------           -----------------------------
                                      1996             1995                    1996           1995
                               --------------    -------------              -----------    ----------- 
<S>                            <C>               <C>                       <C>            <C>
       Sewer Systems           $   18,724,259       15,212,914               2,237,321      1,734,186
                          
       Detection Systems            1,893,907        2,127,518                 463,638        (97,370)
       Corporate                      918,264               -                 (494,053)       (22,902)
                               --------------    -------------             -----------    ----------- 
         Total                 $   21,536,430       17,340,432               2,206,906      1,613,914
                               ==============    =============             ===========    =========== 
<CAPTION>
                                         Total assets
                               -------------------------------
                                     1996             1995
             
       Sewer Systems           $    8,728,565        6,446,760
       Detection Systems              999,135        1,113,824
       Corporate                    1,517,974        1,161,331
                               --------------    -------------
         Total                 $   11,245,674        8,721,915
                               ==============    =============
<CAPTION>
 

                                          Property, plant and equipment
                              --------------------------------------------------------
                                     Additions           Depreciation and amortization
                              ----------------------     -----------------------------
                                1996          1995             1996          1995
                              --------      --------         --------      --------
<S>                           <C>           <C>              <C>           <C>
Sewer Systems ..........      $319,050       349,518          441,867       397,584
Detection Systems ......        29,800        18,157           47,568        28,577
Corporate ..............        54,918        80,424           74,170       126,577
                              --------      --------         --------      --------
  Total ................      $403,768       448,099          563,605       552,738
                              ========      ========         ========      ========
<CAPTION>

                               Amortization and abandonment
                                     of intangible assets
                               ----------------------------
                                   1996           1995
                                ----------     ----------
       Sewer Systems            $   32,688         16,721
       Detection systems                -             953
                                ----------     ----------
           Total                $   32,688         17,674
                                ==========     ==========
</TABLE>
            Export sales of low pressure sewer systems were  approximately  2.8%
                and 3.7% of total Company sales in 1996 and 1995,  respectively.
                Export sales of detection  instruments were  approximately  4.5%
                and 7.2% of total Company sales in 1996 and 1995, respectively.
<PAGE>
(9) Business and Credit Concentrations
       (a)Concentration of Credit Risk and Sales to Major Customers
            Financial  instruments  which  potentially  subject the Company to a
                concentration  of  credit  risk  principally  consist  of  trade
                receivables.  The Company sells products to customers  primarily
                in  the  United  States.   The  Company's  top  eight  customers
                comprised approximately 43% and 53% of trade accounts receivable
                at December 31, 1996 and 1995,  respectively.  To reduce  credit
                risk,  the  Company  performs  ongoing  credit   evaluations  of
                customers but generally does not require collateral.  Allowances
                are maintained for potential credit losses, and such losses have
                been within management's expectations.

            In  addition,  during  1996 and  1995,  sales  to a single  customer
                amounted to 6% and 14% of consolidated sales, respectively.

       (b)Concentration of Purchasing Risk
            During 1996 and 1995,  approximately 52% and 51%,  respectively,  of
                the  Company's   purchases  were  made  from  ten  vendors.   No
                individual  vendor comprised more than 10% of total purchases in
                1996 and 1995.
<PAGE>
Item  8.  Changes  In and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure

                                      None

                           Environment One Corporation
                                   Form 10-KSB
                                    Part III

Item 9. Directors and Executive Officers of the Company
<TABLE>
<CAPTION>
                                                                    Date
        Name                        Position                    Office Began        Age
        ----                        --------                    ------------        ---
<S>                                 <C>                       <C>                    <C>
Walter W. Aker                      Director                       Dec 1968          78

John L. Allen                       Director                       May 1993          53

Stephen V. Ardia                    Chairman                       May 1995          55
                                    President, CEO                 Sept 1996

David M. Doin                       Vice President                 Sept 1991         41

Angelo Dounoucos                    Director                       May 1988          64
                                    President, CEO            Retired, Sept 1996

Lars Grenback                       Director                       May 1993          53

Robert G. James                     Director                       May 1984          72

Rolf E. Soderstrom                  Director                       May 1991          64

Philip W. Welsh                     Treasurer                      May 1995          39
</TABLE>
<PAGE>
All executive  officers of the Corporation are included in the preceding  table.
Executive  officers  serve  until the Board of  Directors'  meeting  immediately
following  the Annual  Meeting of  Shareholders  or until their  successors  are
elected.

Directors  elected at the Company's  Annual  Meeting serve until the next Annual
Meeting.  All of the above  directors  were elected by the  Shareholders  at the
Annual Meeting held May 23, 1996.

Business Experience During the Past Five Years:

Walter W. Aker

He was vice president of the Company from 1968 to 1975 and from 1982 to 1993. He
was elected corporate secretary from 1976 to 1993.

John L. Allen

He is managing partner for the Financial Services Practice,  North America,  for
Heidrick & Struggles, Inc., a global executive search firm. He is located in the
New York, NY office and is also a director of the firm. Prior to his joining the
firm in 1991, he had 24 years in banking  including  nearly  thirteen as a chief
executive officer of Amoskeag Bank Shares, Inc. and Key Bank of Southeastern New
York.  He has a  bachelor  of science  degree in  business  administration  from
Rochester  Institute of Technology,  a master of public  administration from the
Graduate School of Public Affairs,  State  University of New York (SUNY) Albany,
and  is a  graduate  of the  Harvard  Business  School  Program  for  Management
Development.

Stephen V. Ardia

He was elected  president and chief  executive  officer on September 1, 1996. He
received his master of business  administration  from Rutgers  University  and a
bachelor of science degree from the U.S. Merchant Marine Academy.  After working
with Goulds Pumps,  Inc. since 1965, he became its president in 1985. He retired
in 1994  joining  Environment  One  Corporation  as  chairman in May,  1995.  He
presently  serves as a member of the board of  directors  of MaxTec  Holdings of
Dallas, Texas.

David M. Doin

He was elected vice president in September,  1991 and also serves as the general
manager of the Detection Systems  Business.  He received his bachelor of science
degree in business  from the State  University of New York at Albany in 1983. He
joined  the  Company in 1977 in  Measurement  Services  sales and was  appointed
product manager, Scientific Instruments, in 1981.

Angelo Dounoucos

He was vice president and director of Environment One  Corporation  from 1969 to
1976.  He rejoined the Company in 1986 after eight years as a project  marketing
manager at the General Electric  Corporate  Research and Development  Center. He
was elected  president on January 1, 1989 and chief  executive  officer on March
14, 1990.  He retired as president and chief  executive  officer on September 1,
1996.
<PAGE>
Business Experience of Executive Officers During the Past Five Years (con't.)

Lars Grenback

He received his bachelor of economics  and business  administration  degree from
Uppsala University,  Sweden in 1969 and his university certificate in marketing,
advertising and public  relations in 1970.  Since 1975, he has been working with
the low  pressure  sewer  system  in the  Scandinavian  countries  and has  been
president of Svensk Kommunalteknik AB since 1980.

Robert G. James

He received his bachelor of science  degree from  Northwestern  University,  his
master's degree in business  administration from Harvard Business School in 1948
and his doctorate in economics from the Harvard  Graduate  School in 1952. He is
vice chairman of Enterprise  Asset Management Inc. He is also a Certified Public
Accountant.

Rolf E. Soderstrom

He received his bachelor of science degree in engineering  from Tufts University
and his master's degree from Northeastern  University.  He has thirty-five years
of line  management  experience as vice  president of Motorola,  executive  vice
president of Codex  Corporation  and  assistant  general  manager of the Systems
Division of the Foxboro Company.  He is president of the TCS Group, a management
consulting  firm;  director of AG-BAG  International  Limited,  a farm equipment
supplier, a director of Walpole  Massachusetts  Cooperative Bank; and a managing
director of the Nassau Group, a private investment banking company.

Philip W. Welsh

He was  elected  treasurer  in May,  1995 and also  serves  as the  director  of
finance.  He  received  his  bachelor  of science  degree in  business  from the
Pennsylvania State University in 1979 and his master of business  administration
from the California State  University at Long Beach in 1987.  Before joining the
Company  in 1992,  he had worked for  Hughes  Aircraft  Company in Los  Angeles,
California as a finance and accounting manager.

Item 10. Executive Compensation

Information  required by this item is contained in the Company's Proxy Statement
for its May 15, 1997 Annual Meeting, which is incorporated herein by reference.

Item 11. Security Ownership of Certain Beneficial Owners and Management

Information  required by this item is contained in the Company's Proxy Statement
for its May 15, 1997 Annual Meeting, which is incorporated herein by reference.

Item 12. Certain Relationships and Related Transactions

         None
<PAGE>
Item 13. Exhibits and Reports on Form 8-K

Exhibits

3.1      Registrant's Certificate of Incorporation,  as amended, incorporated by
         reference  to Exhibit  3.1 to Form 10-Q  Report  for the period  ending
         6/30/88. (File No. 1-7037)

3.2      Registrant's by-laws, as amended,  incorporated by reference to Exhibit
         3.2 to Form  10-Q  Report  for the  period  ending  6/30/88.  (File No.
         1-7037)

3.3      Registrant's amendment to Certificate of Incorporation.

4.1      Specimen of  Registrant's  Common  Stock  Certificate  incorporated  by
         reference to Exhibit 4.0 of Registration Statement. (File No. 2-38321)

4.2      $2,500,000  Secured Working Capital Revolving Line of Credit Loan dated
         August  19,  1992  between  the  Registrant  and Fleet Bank of New York
         incorporated by reference to previously filed form 10-KSB.

4.3      $3,000,000 Loan and Security  Agreement dated December 30, 1992 between
         the Registrant and Fleet Bank of New York  incorporated by reference to
         previously filed form 10-KSB.

4.4      Note  and  Secured  Revolving  Line of  Credit  Agreement  Modification
         Agreement No. 2 dated March 20, 1995 between the  Registrant  and Fleet
         Bank of New York  incorporated  by reference to  previously  filed form
         10-KSB.

4.5      Note and Loan and Security Agreement Modification Agreement No. 2 dated
         March 20,  1995  between  the  Registrant  and  Fleet  Bank of New York
         incorporated by reference to previously filed form 10-KSB.

4.6      Note  and  Secured  Revolving  Line of  Credit  Agreement  Modification
         Agreement No. 3 dated March 30, 1995 between the  Registrant  and Fleet
         Bank of New York  incorporated  by reference to  previously  filed form
         10-KSB.

4.7      Note and Loan and Security Agreement Modification Agreement No. 3 dated
         March 30,  1995  between  the  Registrant  and  Fleet  Bank of New York
         incorporated by reference to previously filed form 10-KSB.

4.8      Note  and  Secured  Revolving  Line of  Credit  Agreement  Modification
         Agreement No. 4 dated October 18, 1995 between the Registrant and Fleet
         Bank of New York  incorporated  by reference to  previously  filed form
         10-KSB.

4.9      Note and Loan and Security Agreement Modification Agreement No. 4 dated
         October 18,  1995  between  the  Registrant  and Fleet Bank of New York
         incorporated by reference to previously filed form 10-KSB.

4.10     Building Loan Agreement  Modification Agreement dated November 15, 1995
         between  the  Registrant  and Fleet  Bank of New York  incorporated  by
         reference to previously filed form 10-KSB.
<PAGE>
4.11     $2,500,000  Secured Working Capital Revolving Line of Credit Note dated
         October 18,  1995  between  the  Registrant  and Fleet Bank of New York
         incorporated by reference to previously filed form 10-KSB.
 
4.12     Note  and  Secured  Revolving  Line of  Credit  Agreement  Modification
         Agreement  No. 5 dated June 17, 1996 between the  Registrant  and Fleet
         Bank of New York.

4.13     Note and Loan and Security Agreement Modification Agreement No. 5 dated
         June 17, 1996 between the Registrant and Fleet Bank of New York.

10.1     Registrant's  1972 Stock  Option  Plan  incorporated  by  reference  to
         Exhibit 10.1 to Form 10-K Report for the year ended 12/31/88. (File No.
         1-7037)

10.2     Registrant's 1996 Incentive Compensation Plan incorporated by reference
         to Exhibit 10.2 to Form 10-KSB for the year ended  12/31/96 by Form S-8
         filed 10/31/96. (Registration No. 33-15225)

10.3     Registrant's   1996  Incentive   Compensation   Plan  for  Non-Employee
         Directors  incorporated by reference to Exhibit 10.3 to Form 10-KSB for
         the year ended 12/31/96 by Form S-8 filed 10/31/96.  (Registration  No.
         33-15221)

10.4     Registrant's  Non-Employee  Directors Stock Grant Plan  incorporated by
         reference to Exhibit 10.4 to Form 10-KSB for the year ended 12/31/96 by
         Form S-8 filed 10/31/96. (Registration No. 33-15223)

10.5     Registrant's  Amended and Restated  Stock Option Plan  incorporated  by
         reference to Exhibit 10.5 to Form 10-KSB for the year ended 12/31/96 by
         Form S-8 filed 10/31/96. (Registration No. 33-15227)

10.6     Registrant's Deferred Compensation Plan for Certain Executive Employees
         of Environment  One  Corporation  incorporated  by reference to Exhibit
         10.6 to Form  10-KSB  for the year  ended  12/31/96  by Form S-8  filed
         10/31/96. (Registration No. 33-15229)

23.1     Consent of Independent Auditors, KPMG Peat Marwick, LLP.

Reports on Form 8-K

No reports on Form 8-K were filed during the fourth  quarter ended  December 31,
1996.
<PAGE>

                           Environment One Corporation
                                   Form 10-KSB

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  Registrant  has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Environment One Corporation
(Registrant)


/s/Stephen V. Ardia
-------------------                                
Stephen V. Ardia                                     Date: March 25, 1997
Chairman, President and CEO

Pursuant to the requirements of the Securities  Exchange Act of 1934 this report
has been signed by the following  persons,  which  included the chairman,  chief
executive officer,  director of finance and a majority of the Board of Directors
on behalf of the Registrant and in the capacities and on the dates indicated.


/s/Stephen V. Ardia                         /s/Angelo Dounoucos
-------------------                         ------------------- 
Stephen V. Ardia                            Angelo Dounoucos           
Chairman, President and CEO                 Director
Date: March 25, 1997                        Date: March 25, 1997

/s/Philip W. Welsh                          /s/Lars Grenback
------------------                          ---------------- 
Philip W. Welsh                             Lars Grenback        
Director of Finance and Treasurer           Director
Date: March 25, 1997                        Date: March 25, 1997

/s/Walter W. Aker                           /s/Robert G. James
-----------------                           ------------------ 
Walter W. Aker                              Robert G. James            
Director                                    Director
Date: March 25, 1997                        Date: March 25, 1997


/s/John L. Allen                            /s/Rolf E. Soderstrom
----------------                            --------------------- 
John L. Allen                               Rolf E. Soderstrom                
Director                                    Director
Date: March 25, 1997                        Date: March 25, 1997